'Make in India' ?
Matters around FDI get little importance in BJP manifesto
A manifesto is a 5 year vision for political parties and the road map for social and economic goals. When a vision suddenly misses its significant presence in the manifesto, after it was prominently inked in earlier case, it suggests that it loses its sheen to achieve the goal. In the 2014 BJP manifesto, FDI was heightened as the backbone for Make in India. A separate chapter on Foreign Investment was included. In 2019 manifesto, a feather touch was made on foreign investment. To this end, missing FDI significance in 2019 manifesto raised eyebrows of many. In 2014 manifesto, it chanted "FDI will be allowed wherever needed for job and asset creation…We should not remain a market for global industry. Rather, we should become a Global Manufacturing hub".
During BJP's ruling, India received a gushing flow of cash from foreign investors. Not only this, there was a great leap in quality FDI flow. During 2017-18, more than one-fourth of FDI was flowed in computer software/ hardware and telecommunication, compared to one-sixth share in 2014-15. Given this paradigm shift in FDI, India made a dynamic shift in modern equipment manufacturing and development of services. Indeed, FDI contributed a lot in upgrading India's manufacturing level to modern manufacturing. Today, more than 50 per cent of cellular mobile phones are manufactured in the country, against none in 2014 after Nokia shut down its shop in Chennai
During the first four years of BJP government, its pro-foreign investment policy stoked FDI in the country. It spurred by over 45 per cent during the four years period - from US$ 31 billion in 2014-15 to US$45 billion in 2017-18. Besides gushing flow, FDI perked up India's modern manufacturing level akin to Global Value Chain manufacturing. During 2016-17 and 2017-18, more than one-fourth of FDI flowed in computer software and hardware and telecommunications, such as manufacturing cellular mobile phones and communication equipment.
One of the major roles of FDI for an emerging economy is balancing the trade deficit, particularly when the nation is swamped by heavy import of crude oil. India is hamstrung by widening trade deficit, mainly due to large dependence on crude oil. In addition to this, with Modi led BJP vowing for fast growth in digitisation, demand for electronics sky-rocketed. Eventually, it triggered imports of electronic items, given the lackluster development in the country. Electronic imports are the second biggest component in India's total imports, after crude oil.
China is the biggest supplier of electronic items to India, and hence, the major cause of widening trade deficit. In 2017-18, India's trade deficit with China was highest. It accounted for 38 per cent of India's total trade deficit. The main cause for this was oversupply of electronic items by China. Over 57 per cent of India's total imports of electronic items came from China. Given this situation, the counter measure to reduce the trade deficit suggests that more and more Chinese investment should be lured in India, instead of anti-dumping measures.
China is seen not a foe, but an opportunity after the US-China trade tiff. Trust deficit has diluted and both are vying each other hearts to increase bilateral investment and trade. Deceleration in Chinese GDP growth, with a rare hope in reverting to high growth paradise in
the near term, caused a paranoia among the foreign investors, including the Chinese. Eventually, investment through
M&A in China slumped. The steep downfall led China less attractive than India. In 2018, investment in India through M&A was US$ 93.7 billion, which was three times more than in China, amounting to US$ 32.8 billion.
The volta-face of China towards India, affected by dilution in trust deficit during the ongoing trade war, was unveiled by its praise over India's potential as an important destination for investment. According to Mr. Zjao Gancheng, Director of Centre for Asia Pacific Studies at Shanghai Institute of International Studies "India has a wealth of experiences in utilising international capital. There is no doubt it has become more attractive to foreign investors".
As of the end of 2017, the Chinese Ministry of Commerce recorded Chinese investment in India more than US $ 8 billion. Start-ups, infrastructure, and electronic manufacturing have become the key areas for Chinese investment.
Nearly US $2.5 billion was committed for investment in Start-up business in between 2015 and 2016. The major investments were Beijing Mitene Communication Technology investment of US $ 900 million in Media.net and Alibaba investment of US$680 million in Paytem and US$ 500 million in Snapdeal.
Chinese brand cellular phones, manufactured in India, account for over 51 per cent of the smartphones sales in India. Large penetration of Chinese top brands of smartphones, like Xiaomi, Oppo, One-plus, Gionee, Vivo, Huawei are posing challenges to Koreans and Japanese brands.
The Deloitte survey, Global Manufacturing Competitiveness Index (GMCI), 2016, forecasted India to outbid China in low-cost manufacturing competitiveness in the next five years. According to the survey, while China will lose the powerhouse of low-cost manufacturing competitiveness, the Mighty Five – the five Asia Pacific nations, Malaysia, India, Thailand, Indonesia, and Vietnam – will emerge the choice for low-cost manufacturing in place of China. India will be the frontrunner with four countries chasing behind, the survey said.
(The views expressed are strictly personal)